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Merck working on recovery plan as sales dip

Merck continues to feel the pinch of the Vioxx withdrawal as it reports 2 per cent drop in sales

New Merck chief executive Richard Clark has promised that the US company is working on a long-term recovery plan as it suffered a 2 per cent drop in third-quarter sales despite posting a 7 per cent rise in quarterly earnings.

Stiff overseas generic competition to top-selling anti-cholesterol drug Zocor and the company's decision to withdraw Cox-2 painkiller Vioxx last autumn amid safety concerns were largely responsible for the sales slump.

ìWe must improve our performance over the long term, and I truly believe we can,î said Clark, who was promoted six months ago to replace Raymond Gilmartin. He added that by the end of the year he would provide details about a plan.

Analysts said that the company would need to slash operating costs as part of a recovery plan if it is to return to profits growth.

Citing Merck's financial strength, Barbara Ryan at Deutsche Bank predicted that it would manage to ride out the impact of the Vioxx withdrawal.

ìWe believe that management will implement more aggressive restructuring and cost-cutting later this year to offset the earnings decline,î she wrote in a report.

Worldwide third-quarter sales of Zocor fell 14 per cent to $1.05bn. The drug has lost patent protection overseas and generic competition in the US is expected by 2007. Sales of Fosamax were also disappointing at $777m, with the osteoporosis treatment coming under competition from Procter & Gamble and sanofi-aventis' Actonel and Roche and GSK's Boniva (Bonviva in the UK).

Bright spots for Merck were sales of asthma drug Singulair, which saw an 11 per cent rise to $692m and anti-cholesterol drugs Zetia and Vytorin, which saw combined sales jump 83 per cent to $630m.

Net income in the three months to the end of September rose to $1.4bn, against $1.3bn in the previous year.

Merck faces some 6,400 cases in state and federal courts over Vioxx. In the first trial this summer, a jury awarded $253m to a widow who claimed the drug caused her husband's heart attack.

Kenneth Frazier, senior vice president and general counsel for Merck said the company would not alter its defence stance for Vioxx despite the initial defeat and the mounting number of claims: ìWe will continue to defend these facts on the scientific basis of causation. The defence remains the same because it is based on facts and facts don't change.î

Clark said that Merck has not increased the $675m in reserves set aside for Vioxx litigation costs, an amount that will not cover any potential damages from court judgments.

30th September 2008

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